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Spinraza's Fast Start Puts Ionis on a Path to Profit

A strong start for the spinal muscular atrophy drug Spinraza could help Ionis Pharmaceuticals deliver pro forma profit in 2017.

Ionis Pharmaceuticals' (NASDAQ:IONS) collaboration partner Biogen(NASDAQ:BIIB) reported first-quarter financial results earlier today, and in that report, it disclosed that sales of Ionis and Biogen's Spinraza totaled $47 million during its first quarter on the market. If Spinraza's revenue continues to accelerate, a solid tiered-royalty deal could lead Ionis to profitability this year.

What's going on?

Ionis Pharmaceuticals has dozens of drug candidates in clinical trials, and most of those drugs are being developed in partnership with deep-pocketed peers, such as Biogen.

IMAGE SOURCE: GETTY IMAGES.

Ionis hasn't had tremendous success (yet) in getting its drugs across the finish line, but there's evidence that the company's about to take the next step and have its first billion-dollar blockbuster on the market.

Namely, Biogen won FDA approval in December for Spinraza, a RNA inhibitor that's approved for spinal muscular atrophy (SMA), a rare and life-threatening genetic disease. And, because Spinraza's addressable patient population in the U.S. is 9,000, and it costs six figures annually, industry watchers think its sales will eventually exceed $1 billion.

SMA patients produce inadequate levels of a protein called SMN, which is important to the survival of motor neurons. Spinraza tinkers with the gene that produces SMN so that it produces more of it, allowing more motor neurons to survive, thus improving patient motor activity.

Spinraza is the first FDA-approved treatment for SMA, and because SMA can lead to paralysis and potentially death, most patients are likely to be prescribed it. Spinraza isn't a cure for SMA, so patients who begin treatment with it are likely to remain on it throughout their lives.

The drug's list price is $750,000 during the first year of treatment, and it costs $375,000 per year from thereon.

Based on Biogen's first-quarter sales report, it appears Spinraza is destined to be a top-seller. Biogen will pocket the majority of its sales, but Ionis' top line will benefit significantly from royalties.

According to SEC filings, Ionis will receive tiered royalties up to the mid-teens, depending on sales. The company can also receive additional milestone payments associated with Spinraza approvals in other markets outside the United States. Because patents protect Spinraza in the U.S. until 2030, Spinraza is likely to be an important contributor to Ionis Pharmaceutical's financials over the coming decade.

Looking ahead

A significant need for SMA treatment options is trumping push-back on pricing, and Spinraza sales should build steady from here as more patients get treated and the drug becomes available in other markets.

Recently, a key committee advising European regulators offered up its support for EU approval, so Spinraza could soon be available there, too. If Spinraza wins the OK in the EU and Japan, Ionis estimates that Spinraza's addressable patient population will be about 20,000.

Addressing so many patients globally should provide significant support to Ionis financials this year, and in the company's last earnings conference call, it indicated that Spinraza's success could catapult it to pro forma profitability this year. Based on Biogen's first-quarter numbers, I think Ionis can deliver on that prediction, and if I'm right, this should be a good year to be an Ionis investor.

Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Biogen and Ionis Pharmaceuticals. The Motley Fool has a disclosure policy.

Author

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.
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